Arbitrage?

I've heard this used quite a bit on forums, but I can't find a good definition of it. I've pieced some parts of it together if someone could explain it to me exactly what it is and how you do it - that would be great, thanks.

Good Question Glad you asked. In its simplest form Arbitrage is this: I setup an adwords campaign and pay 10 cents per keyword... I try and find the lowest possible keyword prices I can for my niche. I then direct that traffic to a my website which is full of adsense ads which have high paying keywords in them. The theory is that it costs you 10 cents for that visitor, but in the end that visitor will click on a keyword which pays a higher price such as 40 cents, so you would make a profit of 30 cents.

Some people Make a killing doing this...One person named Shoemoney over at digital point even made it into forbes magazine! Check out this article

Google giveth, and Google taketh away. Kris Jones? shopping-review Web site, MarketShareBuilders.com, used to earn $15,000 to $20,000 a month by drawing traffic with Google advertising and linking customers with online merchants. Then one day last July, Jones got an unpleasant surprise: Google hiked his advertising price rates from about 35 cents per click to $10.

That price was well beyond Jones? profit margin from advertising, and without Google?s (nasdaq: GOOG - news - people ) ads, 85% of MarketShareBuilders.com's traffic vanished. The site?s revenue tanked. ?My company has lost six-figure sums because of this,? Jones laments.
MarketShareBuilders and thousands of other sites have become the victims of a new Google policy to wipe out questionable advertisers who are raking in millions while sending users to worthless Web sites. Jones and other critics say that legitimate businesses are also being destroyed, collateral damage from Google?s new attack policy. Meanwhile, many of the intended targets are eluding--and even benefiting from--Google?s new restrictions.

The search giant's targets are Web sites that use arbitrage to take advantage of loopholes in Google?s Adwords advertising system. Adwords allows Web sites to bid on the search terms beside which their advertisements will appear. The more demand for the search term, the more advertisers pay for each click on the ad that appears when users search for that term. The arbitrage scheme exploits that system using the basic buy low, sell high principle: A Web site arbitrageur uses a low-priced keyword to lure traffic and then redirects that traffic to another site that contains little content and is stacked with ads that earn a much higher price.

Take an example from the online market for asbestos-related cancer lawsuits. A Web page arbitrageur can buy a misspelling of mesothelioma like ?mezothelioma? for just nickels per click. The arbitrageur?s ad then appears next to the results for that search term. Google users who click on the ad are led to the arbitrageur's site, which is stocked with more lucrative ads for attorneys and cancer treatments. For those links, the arbitrageur might be paid as much as $25 per click.

One such arbitrageur is Jeremy Schoemaker, a search marketing consultant and well-known Web denizen. Two years ago, Schoemaker says he was living on unemployment checks. Since then, he says he?s made more than $2 million by arbitraging search terms related to cell phone ringtones, teeth whitening and mortgages. ?I love Google,? Schoemaker says. ?They changed my life.?
He estimates that around 50 people are earning more than $1 million a year from Adwords arbitrage, some making several million a month. Web marketers following the scheme agree Schoemaker's estimates are in the ballpark.

?For a while, it seemed like everybody and their mom was doing this,? says Schoemaker. ?I even showed my neighbor, a mechanic, how to do it in a few simple steps, and he was making $8,000 a week.?

The more arbitrageurs like Schoemaker flourish, the more Google fumes. Arbitrage leads Google users to spam-like pages with nothing but more ads. That annoys users, says Google?s senior product director of ads quality, Nick Fox, translating to less trust for Google advertising and damaging the company?s integrity. ?Adwords was founded on the notion that if users are happy, they?ll continue to click,? Fox says.
So Google has revised its page-ranking algorithm, the ?spider? that constantly probes and indexes the entire Web, to give pages a ?quality score? based on whether they appear to be content-less advertising pages or to have legitimate value. Pages with low quality scores are flagged by the spider and often must pay hundreds of times more for the same Adwords in Google?s auctions. Typical of Google, it has left the criteria for these scores a subject of mystery to prevent arbitrageurs from skirting the system.

Critics say the new restrictions have missed the mark, punishing people like Kris Jones who run legitimate Web sites. Search engine marketer Michael Gray says Google?s new scoring has led to an uncountable number of ?false positives,? particularly for coupon and shopping-review sites like Jones? MarketShareBuilders. ?It?s frustrating,? Gray says, ?because you don?t even know why you failed the test.?
Schoemaker insists he and others have in fact found a way to circumvent the crackdown. He says he uses techniques like ?cloaking? to fool Google?s algorithm. Arbitrageurs know the search engine?s IP addresses, the fingerprints that reveal the source of any Web page visitor. So Schoemaker says he sets his web pages to automatically display legitimate content to the Google spider, while giving other users the ad-filled arbitrage page. Schoemaker says that makes him virtually immune to Google?s quality-regulation measures.

In fact, search engine marketers say that cloaked arbitrageurs profit from Google?s attempts to shut down their schemes. Each new restriction in quality scoring weeds out less-professional competitors, lowering the auction price of the Adwords used for arbitrage.
Google?s Nick Fox denies that quality scoring has helped any arbitrageurs, and also claims that the new restrictions have produced no more than a handful of false positives, most of which have been corrected. As for the cloakers, he?s confident that they?ll be caught in the long run.
But Ben Schachter, an analyst at UBS who focuses on Google, disagrees. ?Google may have teams of Ph.D.s working on this, but now the dollars have gotten so large that the black hats have their own teams of Ph.D.s to skirt the system,? he says. ?They?ll never get rid of those arbitrageurs completely.?

Schoemaker certainly isn?t worried about Google tracking down his arbitrage sites, whose urls he declined to reveal. ?Arbitrage is only growing, and the only way they?ll stop it is by stopping Adwords altogether,? he says.

Google giveth, and Google taketh away. Kris Jones? shopping-review Web site, MarketShareBuilders.com, used to earn $15,000 to $20,000 a month by drawing traffic with Google advertising and linking customers with online merchants. Then one day last July, Jones got an unpleasant surprise: Google hiked his advertising price rates from about 35 cents per click to $10.

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That would suck big time.

Google is just protecting their Adwords income, which I read somewhere that in the UK exceeds all other forms of advertising (ie. TV, newspaper, etc).

People are buying advertising space, they're not corrupting the search results which is what people mainly use Google for. I see it as the fault of the legit advertisers for not getting smart and targetting mispellings, niche keywords, etc. As it says in the article, arbitrageurs are simply "linking customers with online merchants".

Arbitrageurs are still helping people find the information they want, even though it's just more ads, it's still value to Google searchers because they are now seeing ads for products which they wouldn't have normally seen, because they mistyped the keyword or whatever.

If I wanted to advertise in a newspaper and resold someone elses product for twice the amount who would care? Go to Ebay, I see heaps of people selling items for more than what you can buy them for in the shops - isn't this what business is about, buying something, marketing it and then selling it for more?

I agree with Shoemoney, ?Arbitrage is only growing, and the only way they?ll stop it is by stopping Adwords altogether? .

I was wondering what it was, and here all along that is what I have been planning on doing. I'm new and have been trying to read as much as I can before I begin. I had a site with adsense on it, but It wasn't targeted to use with adwords. I set it up last year and forgot about it. I recently checked my account and I had a whole $14.00 in it.

Wow this is so interest never knew people was making millions off misspell word from google adsense. Hey I was wondering what is CPA? Damn I spend like a couple of thousands dollars trying to make money online. I wish I could of found this site earlier. I love this site

Schoemaker insists he and others have in fact found a way to circumvent the crackdown. He says he uses techniques like "cloaking" to fool Google's algorithm. Arbitrageurs know the search engine's IP addresses, the fingerprints that reveal the source of any Web page visitor. So Schoemaker says he sets his web pages to automatically display legitimate content to the Google spider, while giving other users the ad-filled arbitrage page. Schoemaker says that makes him virtually immune to Google's quality-regulation measures.

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But the only point that i couldnt figure out is that guy is driving traffic to his website with the cheap keywords (assume that "aaaaa" ) and the G spiders crawls his website with "aaaaa" content ,whereas he cloacked the website to the another content with "bbbbb" (assume that "bbbbb" high paying keyword) for the regular users.So he earns money by the regular user's clicks to that high paying ads.Giving adwords $0,1 for a click,getting $5-6(or whatever) for a click.

As far as i know,adsense tracks the referer of clicks thats been made.
(let's say he hide the referers or whatever)

What's the difference ,if u give an ad to adult or mp3 website with 10000s unique visitors/day that pops up ur webpage with lots of high paying adsense ads on it?

There's a free ebook called "Arbitrage Conspiracy Report", Google it. It has a lot of useful information one could use to get started in what appears to be a potentially lucrative field. Very basic stuff, which networks to join, setting up adwords campaigns, etc., but a good starting point for a newbie. And it's free!

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